SMX (Security Matters) Public Limited Company — Form 20-F Summary
Business context and reporting period
The filing is an annual report for the fiscal year ended December 31, 2022, prepared under IFRS as issued by the IASB. The reported operating results primarily relate to Security Matters Limited, the Australian predecessor operating company, rather than the newly incorporated Irish parent, SMX (Security Matters) Public Limited Company.
SMX develops marker, reader, algorithm and blockchain-based technology for product authentication, supply-chain traceability, recycling and circular-economy applications. Target industries include plastics, rubber, fashion, electronics, gold, metals, alcoholic beverages and precious stones.
On March 7, 2023, after the reporting period, SMX completed its business combination with Lionheart III Corp. and became listed on Nasdaq under the symbols SMX and SMXWW. The filing therefore provides limited historical information for the post-combination public company.
2022 financial and operating metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No change |
| Gross profit | $0 | $0 | No change |
| Research and development expense | $1.898 million | $2.039 million | Down 7% |
| Selling and marketing expense | $569 thousand | $453 thousand | Up 26% |
| General and administrative expense | $2.723 million | $2.482 million | Up 10% |
| Operating loss | $5.190 million | $4.974 million | Loss increased 4% |
| Finance expense | $1.128 million | $101 thousand | Material increase |
| Loss for the year | $6.184 million | $4.939 million | Loss increased 25% |
| Basic and diluted loss per share | $0.04 loss | $0.03 loss | Loss per share increased |
| Operating cash flow | $5.223 million used | $3.908 million used | Use increased |
| Investing cash flow | $1.127 million used | $1.765 million used | Use decreased |
| Financing cash flow | $3.846 million provided | $6.118 million provided | Funding decreased |
| Cash and cash equivalents at year-end | $1.398 million | $4.171 million | Down $2.773 million |
Because revenue was zero, gross margin and other revenue-based margins are not meaningful. The company has incurred operating losses and negative operating cash flow since inception and has not generated significant revenue from technology sales.
At December 31, 2022, total assets were $11.288 million, total liabilities were $9.132 million and total equity was $2.156 million. Intangible assets were $5.027 million, primarily capitalized technology development costs and a purchased license.
Material changes versus the prior comparable period
- Net loss increased by $1.245 million, or 25%, primarily reflecting higher finance expense and increased operating expenses.
- Finance expense increased by $1.027 million, including a $387 thousand change in fair value of financial liabilities and a $710 thousand related-party borrowing bonus provision.
- R&D expense declined by $141 thousand, partly because higher salaries were offset by increased reimbursements from paid pilots and proof-of-concept projects.
- General and administrative expense increased by $241 thousand, driven principally by higher salaries and travel, partly offset by lower share-based compensation.
- Cash used in operations increased by $1.315 million, while year-end cash declined 66% from 2021.
- Capitalized development costs were $975 thousand in 2022, compared with $1.468 million in 2021.
- The company entered into bridge loan agreements during 2022 totaling $3.310 million, bearing interest at 10% and accompanied by warrants and other equity-linked features.
- SMX completed a recycled-plastics marking trial and entered into a worldwide non-ferrous-metals distribution and SaaS reseller agreement with Sumitomo Corporation. The agreement included a stated long-term sales target of $35 million, which is not presented as recognized revenue in 2022.
Guidance, outlook, risks and unusual items
Management did not provide quantitative revenue or earnings guidance. Its stated strategy is to commercialize proof-of-concept projects, expand sales and marketing efforts in the United States, develop strategic partnerships and pursue adoption by market leaders as a pathway toward industry-standard status.
Management stated that existing cash was expected to fund current operations for the foreseeable future, but also disclosed substantial funding needs. Approximately $12 million of existing payables and other liabilities related to the business combination were assumed after year-end, including approximately $8.5 million deferred until the second quarter of 2024. Management expected to fund these obligations through operations, the Yorkville SEPA and potentially additional capital raises.
In March 2023, the company entered into a SEPA allowing it to sell up to $25 million of ordinary shares to Yorkville. It received a $1.5 million advance and expected a further $2 million advance upon effectiveness of the relevant registration statement. The arrangement may provide liquidity but could result in substantial dilution and share-price pressure.
- Commercialization risk is significant: the company had no 2022 revenue, a limited operating history and relatively slow sales cycles with large international customers.
- The company may require additional equity, debt or convertible financing; funding may be unavailable or available only on unfavorable terms.
- Bridge loans, convertible notes, related-party obligations, warrants and redemption features increase refinancing, dilution and liquidity risk.
- The Isorad license is strategically important and requires royalties on gross sales. The filing also discloses potential transaction and exit fees, indemnities and termination rights.
- The company faces competition, manufacturing and supply-chain constraints, employee-retention challenges, foreign-exchange exposure and risks associated with operations in Israel and other foreign jurisdictions.
- Products involving chemical markers and X-ray readers may create product liability, safety, regulatory, permitting and insurance risks.
- The company has over 100 patent applications across more than 20 patent families, but many remain pending and third-party infringement claims or failure to obtain adequate protection could impair commercialization.
- SMX is a foreign private issuer and emerging growth company. It may provide less frequent and less extensive disclosure than U.S. domestic issuers and is not required to provide auditor attestation of internal control effectiveness. The filing states that the audit committee did not have an SEC-defined audit committee financial expert.
- The company does not intend to pay dividends in the foreseeable future.
Most important facts for an investor to verify
- Whether SMX has begun generating recurring commercial revenue after the March 2023 business combination, and the size, timing and economics of customer contracts.
- Actual cash balances, cash burn, current payables and the status of approximately $12 million of business-combination-related liabilities.
- Draws, share issuances, conversion terms, dilution and remaining availability under the Yorkville SEPA.
- Maturities, interest, security interests, warrant obligations and equity-conversion provisions of bridge loans and other financing arrangements.
- Whether the Sumitomo agreement and other pilot or partnership arrangements have converted into binding commercial sales.
- The recoverability of $5.027 million of capitalized intangible assets and the timing of related amortization or impairment testing.
- Compliance with Nasdaq continued-listing requirements and the potential effect of share-price volatility on financing access.
- The status and enforceability of key patents, the Isorad license and any required regulatory approvals for markers and X-ray readers.
- The company’s ability to establish effective U.S. public-company controls; management’s internal-control assessment and auditor attestation were not yet required for this filing.